In a conventional Europay, Mastercard, Visa (EMV) transaction with a smart card (also called a “chip card” or “integrated circuit card”), a card reader meets certification requirements for level 1 and level 2. To be certified for level 1, the card reader must properly implement physical, electrical, and transport level interfaces for communication conforming to EMV protocol. To be certified for level 2, the card reader must properly implement, according to the EMV protocol, payment application selection and financial transaction processing. A point-of-sale terminal requires satisfying requirements established by both levels of certification to conduct a complete EMV transaction.
When conducting a point-of-sale credit card transaction with a smart card, a cardholder's identity is confirmed by requiring the entry of a Personal Identification Number (PIN) rather than or in addition to signing a paper receipt. A user provides a card at the point-of-sale to a merchant. The card contains an embedded microchip which stores the PIN. The merchant processes the card using a card reader, e.g., the card is inserted into the reader to engage electrical contacts for the microchip. The card reader verifies the card as authentic and waits for the user to enter the PIN. The user can enter the PIN on a keypad terminal of the reader, i.e., the keypad and the reader are a single physically integrated device. In some implementations, after the user enters the PIN, the microchip notifies the card reader as to whether the entered PIN is correct or incorrect. In some other implementations, the card reader sends the PIN to a credit card processor that replies with a determination as to whether the entered PIN is correct or incorrect.
The card transaction is further authorized and captured. In the authorization stage, if the entered PIN is correct, a payment request is sent electronically from the card reader to a credit card processor. The credit card processor routes the payment request to a card network, e.g., Visa or Mastercard, which in turn routes the payment request to the card issuer, e.g., a bank. Assuming the card issuer approves the transaction, the approval is then routed back to the merchant. In the capture stage, the approved transaction is again routed from the merchant to the credit card processor, card network and card issuer, and the payment request can include a cardholder's signature, if appropriate. The capture state can trigger the financial transaction between the card issuer and the merchant, and optionally creates a receipt. There can also be other entities, e.g., the card acquirer, in the route of the transaction. Debit card transactions have a different routing, but also require insertion of the smart card into a reader.